Table Of ContentDEPARTMENT OF CONSUMER AND BUSINESS SERVICES: DIVISION OF FINANCIAL
REGULATION
In Accordance with House Bill 4094 (2016)
Aeron Teverbaugh, Senior Policy Analyst
12/30/2016
This report reviews the current state of the provision of depository and related financial services to
businesses engaged in the legal production, processing and sale of marijuana and marijuana derived
products.
ACKNOWLEDGEMENTS
The department wishes to thank the members of the workgroup. This report would not have been
possible without the benefit of their expertise and their contributions to the report. Any errors are
the responsibility of the author and in no way reflect upon the caliber of the workgroup.
Workgroup Members:
Ken Berke, CEO PayQwick
Kevin Christiansen, Government Affairs Director Oregon Bankers Association
Joanie Cosgrove, Lindsay & Hart
Cameron Deiss, Mid Valley General Agency
Melissa Frick- Minick, Marsh Minick
Alan Hanson, General Counsel, MaPS Credit Union
Deanna Mack, Agency Legislative Liaison, Department of Revenue
Mazen Malik, Senior Economist at State of Oregon Legislative Revenue
Steve Marks, Executive Director, Oregon Liquor Control Commission
Andre Ourso, Section Manager, Medical Marijuana Program, Oregon Health Authority
Cora Parker, Director, Finance Division Office of the State Treasury
Rachel Pross, Vice President of Risk, MaPS Credit Union
With participation from:
Richard Blackwell, Policy Manager, Division of Financial Regulation
Mary Botkin, Mary Botkin & Associates
Cara Coon, VP Government and Civic Relations, Umpqua Bank
Judy Giers, Deputy Chief Counsel, Oregon Department of Justice
Pam Leavitt, Policy Advisor, Northwest Credit Union Association
Matt Markee, Markee and Associates
Judi Mehrens, Mary Botkin & Associates
Jacob Mundaden, Program Manager, Banks & Trust Companies, Division of Financial
Regulation
Jake Oken-Berg, Business Liaison, Office of U.S. Senator Jeff Merkley
Lauren Oppenheimer, Minority Staff Director of the Subcommittee on Financial Institutions and
Consumer Protection
Janet Powell, Manager Credit Union Program, Division of Financial Regulation
Lauren Winters, Senior Policy Analyst, Division of Financial Regulation
1
Contents
ACKNOWLEDGEMENTS ............................................................................................................ 1
Executive Summary ........................................................................................................................ 3
I. BACKGROUND ......................................................................................................................... 5
II. THE WORKGROUP ................................................................................................................. 6
III. THE ISSUE ............................................................................................................................... 7
IV. CANNABIS RELATED GUIDANCE ..................................................................................... 8
V. CURRENT AND RECENT ACTIONS TO FACILITATE DEPOSITORY SERVICES ...... 12
VI. CHANGES TO STATE OR FEDERAL LAW AND REGULATIONS TO FACILITATE
DEPOSITORY SERVICES .......................................................................................................... 14
Lobbying: .................................................................................................................................. 14
Rescheduling: ............................................................................................................................ 16
Regulatory Actions: .................................................................................................................. 16
A state or dedicated financial institution: ................................................................................. 18
VII. CONCLUSION ..................................................................................................................... 19
APPENDIX A ............................................................................................................................... 21
Regulation of Banks and Credit Unions ....................................................................................... 21
General ...................................................................................................................................... 21
Money Service Businesses ........................................................................................................ 22
The Federal Reserve and Master Accounts .............................................................................. 22
The Bank Secrecy Act of 1970 ................................................................................................. 23
APPENDIX B ............................................................................................................................... 25
The CSA and Brief History of Department of Justice Actions Against state legal cannabis ........ 25
APPENDIX C ............................................................................................................................... 27
Oregon’s History with Cannabis and Regulatory Structure......................................................... 27
Oregon’s marijuana regulatory structure .................................................................................. 27
Evidence of Current Access To Accounts ................................................................................ 29
2
Executive Summary
It is difficult for marijuana-related businesses to obtain, and then maintain, depository and
related banking services. Federal law, specifically the Controlled Substances and the Bank
Secrecy Acts, make it illegal for financial institutions to offer services to marijuana-related
businesses. Federal entities have issued various pieces of guidance meant to assure financial
institutions that if they uphold their reporting responsibilities under the Bank Secrecy Act and
ensure that the enumerated federal enforcement priorities are not implicated, they can offer
services to the industry. However, the fact remains that doing so would technically be aiding in a
violation of federal law. The parameters for federal prosecution are laid out in memoranda from
the U.S. Department of Justice and Department of Treasury. How to avoid regulatory penalties is
less clear and poses a significant threat to financial institutions. Federal and state regulators can
downgrade institutions’ ratings, require increased supervision and control, levy civil penalties,
and bar institution executives from holding jobs in the financial sector. These are the things that
unnerve financial institutions.
Financial institutions are subject to dual regulatory authorities: state and federal regulators.
Federal regulators examine banks and credit unions for their safety and soundness to prevent
damage to the financial system or respective deposit insurance fund. State regulators oversee
state chartered institutions to ensure safe and sound operations and prevent consumer harm. State
regulators examine for compliance with federal laws such as the Controlled Substances Act and
Bank Secrecy Act (BSA) because violating federal law is an inherently unsafe practice. The
guidance from the federal government regarding canna-businesses has been fairly consistent up
to this point: it is possible to offer financial services to marijuana related businesses so long as
BSA due diligence and reporting are strictly adhered to and special attention is paid to
indications of interstate trafficking, criminal enterprise or black market participation, and selling
to minors. The recent election, and announcement of presidential cabinet members, has cast
doubt upon whether the previous policy stances will continue under the new administration. A
number of potential cabinet members are hostile to marijuana and state cannabis legalization
efforts.
State regulators have no jurisdiction over federally chartered institutions. Some large national
financial institutions have expressly stated that they cannot and will not violate federal law by
serving the cannabis industry. Institutions that have been serving the industry have largely been
state-chartered credit unions and smaller community banks. Concentrating, in a few financial
institutions, deposits subject to federal forfeiture due to a change in executive policy, is not a safe
and sound management model. To avoid concentration of deposits, marijuana related deposits
need to be distributed amongst various financial institutions. Conducting the enhanced due
diligence required by the federal guidance requires substantial compliance resources – personnel,
software, expertise. Institutions must assess the cost of providing services, the risk of
administrative or criminal sanction, reputational risk, and develop policies and procedures to
ensure that accounts will not implicate enforcement priorities. Where state or federal regulators
do not actively support serving the industry, a board is more likely to decide against accepting
deposits. Clear communication with regulators, in states with strong administrative and
enforcement programs, may contribute to a higher percentage of financial institutions serving the
cannabis industry.
3
Oregon’s recreational marijuana program is still in the process of coming fully on-line. As
marijuana related businesses are licensed and engaged with the seed-to-sale tracking database,
financial institutions will have data which can be used to demonstrate that they are only
providing services to businesses working within the state’s rigorous regulatory scheme.
Licensing and inspection, product tracking, testing, labeling and package requirements, and
transparent financial trails should be effective in preventing:
Sales to minors
Trafficking marijuana or other drugs
Cartel or bad actor involvement
Increased violent crime and firearm usage in connection with marijuana
Preventing growing and production on federal lands
Preventing adverse public health consequences
However, until the regulatory protections are fully in place, financial institutions may only rely
upon their own enhanced due diligence to ensure that no prospective depositor is stepping into
one of the federal enforcement priority areas. Without specific reassurances from regulators
regarding adequate policies, many financial institutions will not take the risk. The uncertainty
surrounding the continuation of current federal policies is likely to have a chilling effect on
financial institutions that may have otherwise been willing to accept cannabis-related accounts.
Until the in-coming administration either accepts or repudiates current guidance neither canna-
businesses nor financial institutions can be sure that they will not be subject to federal
prosecution.
The marijuana industry faces several barriers to obtaining depository and related financial
services: legal, social, and contractual. Ultimately, the underlying federal legal status of
marijuana needs to change in order to fully ensure the industry has access to depository and
related financial services. Even after changes at the federal level, there will remain a social
perception or moral objection to marijuana that will prevent some boards from approving their
institutions to serve the industry. Outreach, communication, and general support for financial
institutions seeking to serve the industry may facilitate the provision of depository services,
provided there is no change at the federal level. Increased familiarity with regulator expectations
may act to assure financial institutions that regulators will not penalize them for accepting
marijuana-related deposits. This will, in turn, inform other financial institutions’ risk assessments
and facilitate greater access to depository services. The realization of a full state administrative
and enforcement scheme may also facilitate the provision of depository services to the industry.
The full force of state controls will help institutions to more reliably determine that they are not
implicating the federal enforcement priorities and will reduce on the costs of the required
enhanced due diligence.
Paper copies of this report may be obtained at 350 Winter St. NE Salem, OR 97302. Electronic
copies of the report may be downloaded at http://dfr.oregon.gov/pages/index.aspx.
4
I. BACKGROUND
As of October 2016, Oregon’s burgeoning cannabis industry recorded $160 million in
sales. The industry’s growth, however, is hampered by the lack of access to banking and
depository services. The department is aware of only 2 banks (10% of the state chartered
banks) and 1 credit union (approximately 5% of state credit unions) that are knowingly
accepting cannabis related accounts. This is comparable to Washington, which reports
that approximately 5-10% of their state chartered financial institution are providing
services to the industry.1 Because legal canna-businesses are having trouble obtaining, or
maintaining, a banking relationship, most operate on a largely cash basis. This creates
difficulties related to paying employees and vendors. It affects recordkeeping and
financial transparency. It creates logistical problems in paying taxes and licensing fees,
exposing legal businesses, and their employees, to potential violent crimes related to
large amounts of cash stored on the premises or manually transported. The lack of
banking services also impacts the effectiveness of the state’s regulatory regime. Lack of
transparent financial dealings undermines the state’s ability to safeguard against drug
trafficking, black market dealings, and diversion of cannabis outside the regulated
system. The cash-heavy economy not only affects direct participants in the cannabis
market but also indirect participants. Agencies collecting licensing fees and tax revenues
bring in large amounts of cash and are running into difficulties depositing it with their
traditional banking partners.
The landscape around legal cannabis is constantly changing as more states legalize
marijuana for recreational and medical purposes, the federal government takes policy
stands, and as the market and regulations mature.2 Ultimately, cannabis’ status under
federal law is the major impediment to “banking” the industry.3 Only U.S. congressional
action can “fix” the problem. However, the modest success Washington and Colorado
have had banking their marijuana-related businesses points to actions at a state level that
may encourage more financial institutions to offer depository services to the cannabis
industry. Those states have had mature regulatory structures for licensing and tracking
cannabis production and sales for at least a year. Washington and Colorado regulators
engaged in extensive outreach to financial institutions, building relationships and
providing specific guidance regarding institutional responsibilities for reporting and
managing cannabis-related accounts. While Oregon’s regulatory scheme is still coming
fully on-line, Oregon’s cannabis industry may benefit from state regulators following
Washington and Colorado’s lead regarding coordinated outreach to the financial
institutions.
This report was drafted to meet House Bill 4094’s mandate to the Department of Consumer and
Business Services to study and identify actions to facilitate the provision of depository and
related services to businesses that engage in the production, processing or sale of cannabis and
1 It should be noted that Washington has more state-chartered financial institutions than Oregon.
2 As of November 9, 2016, 28 states and the District of Columbia have decriminalized marijuana for medical purposes. Nine
states have decriminalized marijuana for adult recreational use. The recent election may signal a change in policy at the executive
level. The impact of changes at the U.S. Departments of Justice and Treasury are discussed later in this report.
3 This report uses the term “banking” generically to refer to depository services offered by both banks and credit unions.
5
cannabis derived products.4 HB 4094 was one of a series of bills enacted as part of the
continuing refinement of Oregon’s recreational cannabis market. The bill addressed three areas
of cannabis financial regulation. First, it exempted financial institutions providing services to the
legal cannabis industry from Oregon’s money laundering statutes. Second, it required the Oregon
Liquor Control Commission, the Oregon Health Authority and the Oregon Department of
Revenue to share licensing applications and related documents with financial institutions.
Finally, it required the Department of Consumer and Business Services to conduct a study on:
The provision of depository and related financial services to businesses that
engage in the lawful production, processing or sale of marijuana and marijuana
derived products;
State laws and rules, federal laws and regulations and administrative acts related
to providing depository and related financial services; and
How those laws, rules, regulations and acts apply to businesses that engage in the
production, processing or sale of marijuana and marijuana derived products.
The department was specifically required to:
Evaluate the Department of the Treasury’s February 14, 2014, memorandum BSA
Expectations Regarding Marijuana-Related Businesses; and
Identify any legislation or administrative action required to facilitate the provision
of depository and related financial services to businesses that engage in the
production, processing or sale of marijuana and marijuana derived products.
The bill also required the department to present a report to the interim legislative
committees related to business and any interim legislative committee specifically related
to businesses that engage in the production, processing, or sale of cannabis and cannabis
derived products. This report is structured in three parts: The issues facing financial
institutions that accept cannabis related deposits; actions taken and recommendations that
may spur greater access to depository services; and appendices that provide greater detail
related to the regulation of financial institutions.
II. THE WORKGROUP
The Department of Consumer and Business Services convened a workgroup of agencies,
financial services representatives, and interested persons to provide feedback on the content and
format of this report. The workgroup met twice to discuss the regulatory and business landscape
surrounding canna-business depository accounts and related services. Each of the workgroup
members related issues that they encountered and brainstormed possible solutions.
Representatives from the Oregon Liquor Control Commission and the Oregon Health Authority
discussed the transition from the early sales of recreational marijuana to a full licensing and
tracking program. They discussed progress toward HB 4094’s requirement that they, along with
the Oregon Department of Revenue, share information regarding licensure and compliance with
financial institutions. Representatives from the Oregon Bankers Association and the NW Credit
Union Association discussed the situation for local banks and credit unions. MAPS Credit Union
shared their experiences opening and maintaining cannabis accounts, including compliance costs.
4 Oregon Laws 2016, chapter 97 §7(1).
6
A representative from Umpqua Bank shared her perspective as well. Compliance Specialists and
independent consultants discussed their experiences with financial institutions exploring
cannabis accounts. A representative from an Oregon and Washington licensed money transmitter
specializing in cannabis accounts shared his experiences. Representatives from the Oregon
Treasury Department and Department of Revenue discussed depositing tax and licensing
revenue.
A member of the Oregon Legislative Revenue Office joined the group, as well as representatives
from Senator Merkley and Representative Read’s offices. Lobbyists for Oregon’s Consumer
Finance industry also attended the meetings.
The group discussed the current state of “banking” the cannabis industry. They reviewed various
proposals for improving access to depository accounts. The group discussed the Financial
Crimes Enforcement Network’s (FinCEN) guidance related to the Bank Secrecy Act (BSA)5
responsibilities for depositories accepting cannabis accounts and the impact of the Cole memos.6
The workgroup considered the impact of regulatory actions in Washington and Colorado on
canna-banking in those states. It discussed whether rescheduling cannabis would improve access
to financial services and whether the formation of a state bank would provide a route for banking
canna-businesses. The group reviewed the recent Fourth Corner Credit Union case which
revolved around a Colorado-approved credit union unable to obtain a master account from the
Federal Reserve.7 The case illustrates the role master accounts play in the modern banking
system. The group discussed actions that Oregon regulators could take that might encourage
more depository institutions to look into accepting cannabis accounts.
The group debated actions at the state level that might alleviate some of the pressures related to
canna-businesses as a cash heavy industry. Overall, the group believes that only action at the
federal level will provide a final resolution to the issue regarding marijuana related accounts.
III. THE ISSUE
The root cause of the difficulty “banking” the cannabis industry is federal law. In particular,
three federal laws working together impact financial institutions’ ability to provide depository
services to canna-businesses: the Controlled Substances Act (CSA);8 the Currency and Foreign
Transaction Reporting Act, commonly referred to as the Bank Secrecy Act (BSA);9 and the
Money Laundering Control Act.10 While federal drug laws do not necessarily preempt state
marijuana regulation efforts,11 federal banking laws and regulations affect every financial
institution: banks, credit unions, and money services businesses like money transmitters. The
U.S. has a “dual” banking system where financial institutions are overseen by both state and
federal regulators.12 Financial institutions are legally obligated to protect the financial system
5 The Department of the Treasury, Financial Crimes Enforcement Network, FIN-2014-G001, BSA Expectations Regarding
Marijuana Related Businesses (February 14, 2014).
6 Deputy Attorney General James Cole, Guidance Regarding Marijuana Enforcement (August 29, 2013). Deputy Attorney
General James Cole, Guidance Regarding Marijuana related Financial Crimes (February 14, 2014).
7 Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City, 154 F.Supp.3d 1185, 1188 (US Dist.Colorado 2016).
8 21 U.S.C.§812 et seq.
9 31 U.S.C.§5311–5324, and the BSA regulations, 31 C.F.R. Part 103.
10 18 U.S.C. § 1956 & 18 U.S.C. § 1957.
11 21 U.S.C. § 903 (limits the scope of the CSA preemption of state laws to those that create a “positive conflict.”)
12 Please see Appendix A for more details regarding state and federal regulators.
7
from misuse by criminal money laundering. The fact that cannabis remains illegal at the federal
level forces financial institutions to decide whether to violate federal law in order to help a
state’s cannabis industry or to close cannabis-related accounts and adhere to federal law.
While cannabis remains illegal under federal law, decriminalization by the states have resulted in
policy statements from the U.S. Department of Justice and the U.S. Treasury’s Financial Crimes
Enforcement Network (FinCEN) related to prosecution of marijuana related crimes within states
that have legalized cannabis. The “Cole memos” represent current prosecutorial priorities and the
BSA Expectations Regarding Marijuana Related Businesses guidance lays out a financial
institution’s responsibilities if they hold canna-business accounts. Both documents expressly
state that they do not change federal law regarding marijuana. Guidance documents can be
withdrawn at will. The recent election, and announcements regarding the incoming
administration’s picks for heads of the Justice and Treasury Departments have left the fate of the
current guidance very uncertain.
IV. CANNABIS RELATED GUIDANCE
The U.S. Department of Justice traditionally relies upon state and local officials to enforce
narcotics laws.13 Shortly after states began to decriminalize medical cannabis, the Department of
Justice’s Attorney General’s office issued the first in a series of guidance documents to the U.S.
Attorneys regarding investigations and prosecutions related to medical marijuana in states that
had enacted laws allowing for cannabis cultivation and use.14 In general, the memoranda from
the U.S. Deputy Attorneys General have emphasized that marijuana remains illegal under federal
law. Despite the federal status of cannabis, the memoranda admonish U.S. Attorneys to
concentrate finite federal resources on the Department of Justice’s core enforcement priorities.
The federal enforcement priorities laid out in 2009 have changed little. In short, they are:
Keeping marijuana out of the hands of minors;
Preventing diversion of marijuana from states where it is legal to other states where it is
not;
Preventing state authorized marijuana activity from being used as a pretext to traffic other
drugs;
Preventing criminal enterprises from profiting from the sale of marijuana;
Preventing violent crimes and firearm usage;
Preventing drugged driving and other adverse public health consequences; and
Preventing growing, use, possession and production of marijuana on federal lands.15
Legalization of recreational cannabis in Colorado and Washington prompted the Department of
Justice’s Attorney General’s office to look at recreational marijuana in 2013. The office
determined that the CSA does not expressly preempt states from adopting their own drug laws,
but the U.S. Attorney General could challenge individual state’s regulatory schemes in order to
13 2013 Cole memo supra at 2.
14U.S Deputy Attorney General David Ogden, Investigations and Prosecutions in States Authorizing the Medical Use of
Marijuana (October 19, 2009).
15 Id at 2.
8
address federally prohibited conduct.16 Recently, former Deputy Attorney General James Cole
described his 2013 memo as a common sense approach to address the office’s priorities. He
stated it was his intent to admonish states to “get serious about your regulatory enforcement” if
they intended to decriminalize cannabis.17
In particular, Cole wrote, that the 2013 guidance was founded on the expectation that states and
local governments implement strong and effective regulatory and enforcement systems to
address threats that state laws allowing cultivating, processing, and distributing cannabis could
pose to public health and safety. “A system adequate to that task must not only contain robust
controls and procedures on paper; it must also be effective in practice.”18 If states’ enforcement
is “sufficiently robust” to protect against the harms represented by the federal enforcement
priorities, then a federal prosecutor should rely on state and local law enforcement to address
marijuana related activity.
“If state enforcement efforts are not sufficiently robust to protect against the
harms set forth above, the federal government may seek to challenge the
regulatory structure itself in addition to continuing to bring individual
enforcement actions, including criminal prosecutions, focused on those harms.”19
Cole noted that “a tightly regulated market where revenues were tracked and accounted for”
could “affirmatively address” the federal enforcement priorities.20 Missing from the guidance
was a clear path for financial institutions to provide services to canna-businesses in the context
of federal laws which forbid engaging in financial and monetary transactions with proceeds from
illegal activities. The guidance expressly stated that “neither the guidance herein nor any state or
local law provides a legal defense to a violation of federal law, including any civil or criminal
violation of the CSA.”21
2014 saw significant changes in the cannabis field but no tangible changes in federal law.
Responding to requests from Washington, Colorado, Oregon, and Alaska, Deputy Attorney
General Cole issued guidance addressing marijuana related financial crimes. The question,
specifically, was the treatment of financial institutions and marijuana related accounts. Cole
responded to requests for clarification by stating that,
“Financial transactions involving proceeds generated by marijuana-conduct can
form the basis for prosecution under the money laundering statutes (18 U.S.C. §§
1956 and 1957), the unlicensed money transmitter statute (18 U.S.C. § 1960), and
the BSA.”22
Cole reiterated, however, that it “may not” be an efficient use of federal resources to prosecute
marijuana related activities that were conducted in accordance with a “clear and robust
16 The Famous Marijuana Memos: Q&A with Former DOJ Deputy Attorney General James Cole (July 27, 2016).
http://mjbizdaily.com/the-famous-marijuana-memos-qa-with-former-doj-deputy-attorney-general-james-cole/
17 Id.
18 2013 Cole memo supra at 2.
19 Id at 3.
20 Id.
21 Id.at 4.
22 2014 Cole memo supra at 2.
9
Description:businesses engaged in the legal production, processing and sale of Jacob Mundaden, Program Manager, Banks & Trust Companies, Division of .. The case illustrates the role master accounts play in the modern banking system.
